Issues and Challenges for Developing an Islamic Inter-bank Benchmark in Pakistan

Purpose: The purpose of this paper is to identify and discuss the issues and challenges involved in developing an Islamic interbank benchmark in Pakistan. Design/approach: To achieve this objective the paper initially evaluates the need and the purpose for having a separate Islamic benchmark. Subsequently the paper compares the mechanisms of interest based benchmark prevailing in Pakistan and the Islamic interbank benchmark rate launched recently in the international market with the proposed mechanism of Islamic benchmark in Pakistan. This proposed mechanism is further critically evaluated regarding its practicality and the challenges involved in making the benchmark a reliable representative of the Islamic interbank market are discussed at length. The crucial question whether this Islamic benchmark will be independent from the prevailing conventional benchmark is analyzed along with suggested scenarios under which the Islamic benchmark shall be de-linked from the conventional benchmar